Innovation Evaluation Framework: Use Compatability

True innovation requires a more expansive evaluation than a traditional business case and needs to be considered with features and attributes that are more qualitative and driven more by emotion than logic. Seven components contribute to innovation success: choice/control, convenience, community, completeness, compatibility, coolness/communicationand customer’s cost. These factors, used to evaluate an idea early in the process, can contribute to the success of a new product or service by improving adoption, reducing risk and building trust for the new product or service.

Compatibility with existing infrastructure and standards is an important factor when evaluating an innovation. Does the innovation build on existing infrastructure and standards, seek to create a new standard or disrupt an existing standard? Compatibility provides a choice – align to existing standards and improve other factors of the product or service, or disrupt and improve or eliminate the existing standards to provide a completely new product or service.

Standards

The world is full of standards. Published, accepted standards increase the likelihood that products and services will work together seamlessly, reduce a consumer’s risk and learning curve and increase adoption, because consumers know that a product will work as expected. Innovators have to make a choice when considering compatibility and standards – support an existing standard or disrupt an existing standard. Supporting an existing standard (compatibility) lowers the risk of adoption of the innovation and increases the chance for success, but lowers the potential differentiation and return. Adopting the existing standard means that the new product or service must differentiate along some other factor; the solution will capitalize on existing standards for rapid acceptance.Disrupting an existing standard or creating an entirely new standard increases the risk of failure and may slow the adoption of an idea, but can create significant return if successful.

Innovators need to make decisions about the importance of aligning to an existing standard and providing compatibility with that standard. Two examples illustrate this point. Dell chose to build IBM-compatible machines but dramatically changed the selling model for PCs. Given the risk in changing the business model, creating a new PC platform or operating system was out of the question. Dell accepted the established standard (PC compatibility) and differentiated around the business model (selling direct and building after the order, with no inventory) rather than the existing distribution model. Next Computer, on the other hand, attempted to create a new PC operating system well after the adoption of the PC-AT model throughout the industry and failed miserably. In an adjacent field, the Ethernet networking standard was introduced by firms competing with IBM and the existing Token Ring standard. Ethernet was able to disrupt the standard and became the dominant networking standard, even in the face of IBM’s computing dominance by demonstrating better value and scalability.

What Does Compatibility Mean?

Compatibility is often thought of as a technical requirement. When considering compatibility, it is typically related to hardware and/or software and the ability for applications to interconnect.Extending this thinking a bit further shows that compatibility is important for innovations beyond physical products. A product or service needs to be compatible with consumer needs, standards, expectations and modes of behavior. No matter how interesting or powerful an idea, if it does not align to consumer expectations or forces a change in consumer behavior, it will face resistance. Is the new product or service compatible with the expectations of the consumer and the way they have acquired and used the solution that will be replaced?

In the end, compatibility is about benefits and the cost of change. Consumers are willing to change if the benefits of the new product or service strongly outweigh the benefits of the previous solution and the magnitude of the change is not large. Otherwise, compatibility becomes exceptionally important given the expectations, investment and infrastructure in place already. An innovation that provides incredible benefits but makes significant investments in technology or infrastructure obsolete is difficult for many consumers to accept.

Choosing Compatibility

Creating products and services that are compatible with existing standards and infrastructure makes sense for both incremental and disruptive products and services. Compatibility creates a network effect, adding value to all products and services. For example, if a company created the best headphones on the market, but required a completely new type of jack unlike the existing pin types used on existing audio equipment, its innovation would fail. The existing investment in audio equipment in the hands of consumers and the cost to add a new jack to existing audio equipment models would negate the power of the headsets until the company could convince the audio industry to adopt a new standard for jacks or create an adapter to the existing standard.

Most new innovations rely on existing standards and firmly held expectations. When these consumer expectations are not met, a new product or service will fail. Services firms often seek to innovate customer service by providing more automation in customer service. While these tools may cut costs and provide better service, they violate consumer expectations of personal service and can be perceived negatively. Attempts to improve service using technology often falter because customers’ expectations of services and the perceived standards of service do not match to what is delivered by technology, so customer satisfaction falls.

When considering an idea as a new product or service, carefully consider the existing standards and expectations in the user community and determine the value proposition of the product or service. Is the offering differentiated in other ways that allow a business to gain value from the idea while reinforcing a standard? What does the consumer gain by switching to the solution while building on an established standard or expectation?

Disrupting Compatibility

Most innovators dream of dramatically changing the status quo – creating a new product or service that disrupts a competitor or market. The challenge that most disrupters face is that they require consumers to change their behavior or accept a product that does not align to existing standards. While there are early adopters in any market, the majority of the consumer base expects products and services that align to a standard or create a new, and complete, solution. Unless your innovation provides dramatically greater benefits than the existing product or service, the consumer will remain with the incumbent product or service.

A good example of an entrenched incumbent ripe for disruption is Microsoft. It would be hard to count the number of PC operating systems that have attempted to disrupt Microsoft’s hold on the operating system. Many firms have tried, and only Linux can be considered a threat. Linux was intended as an alternative to Microsoft, and used Microsoft’s dominance and strengths against Microsoft.

Linux attacks Microsoft on three dimensions – emotion, finances and openness. For many people, Linux is an alternative simply because it is not Microsoft. Linux is also much less expensive than Microsoft and is more open and configurable. Even though Linux and open source software is popular, however, this innovation is unlikely to disrupt Microsoft since so many users rely on software compatibility. Many firms have significant investment in Microsoft’s software and will not change until Linux proves it is ready for more than just the technical staff. A disrupter always faces a higher expectation for quality, service and delivery, since the disrupter forces the consumer to change his habits. Linux, however, is unlikely to create a new standard in comparison with Microsoft.

If a business seeks to disrupt an existing market or standard, the product must create a compelling value proposition for its target audience. In many cases, an innovation is challenging an existing capability or technology that is entrenched and considered a standard. It will need to demonstrate enough value that it causes consumers to make an active change in their behavior, and to completely adopt that change.

When a company is considering ideas that may require a change in an existing standard or consumer experience or expectation, evaluate the benefits a product or service offers and what a customer values. Since the risk of change are high and the cost of overturning an existing standard are very high for the consumer, the innovation must provide incredible benefits and eliminate concerns about the existing standard.

Conclusion

A business makes an active choice when it comes to compatibility. With an innovation, a company can choose compatibility with the existing infrastructure and expectations, making it easier for customers to acquire and use its products and services. Or a business can choose to create a product so disruptive that it eliminates the need or thinking behind the existing infrastructure, which will provide a more dramatic return on an investment but may take longer to launch and acquire sales. Companies should not underestimate the cost of overturning an existing standard, whether that standard is a technical standard or a set of expectations and experiences that people have when using a service.

Either approach is valid, but a company’s strategic intent is important. Embracing compatibility means faster acceptance in the market but potentially lower profits, while disrupting the market can mean market dominance and higher profits combined with significantly greater risks. These decisions have a great impact on a company’s planning, time frames and market offerings, so the decision must be made carefully.

About the Author:

Jeffrey Phillips is a vice president with OVO and responsible for marketing and for leading innovation projects with OVO’s clients. Mr. Phillips has extensive experience working in the innovation space, with a wide range of Fortune 500 firms. He has published articles for Harvard Management Update, DigitAll Magazine, Pure Insight and blogs about innovation at Innovate on Purpose. Contact Jeffrey Phillips at jphillips (at) ovoinnovation.com.